Commercial paper

It is an unsecured money market instrument, usually issued by top-rated corporates to meet their working capital requirements. The instrument was introduced in 1990 to Indian borrowers and initially such issues were confined only to corporates. Subsequently, primary dealers were also permitted to issue CP to enable them to meet their short-term funding requirements. CP can be issued for tenors ranging from a minimum of 15 days to a maximum up to one year. CPs can also be traded in the secondary market by investors.


What is the eligibility condition? 

• The tangible net worth of the company is not less than Rupees four crore
• Working capital (fund-based) limit of the company is not less than four crore
• The minimum credit rating of the company shall be P-2 from CRISIL or equivalent from other Rating agencies
• The borrowal account of the company is classified as a Standard Asset, according to the Reserve Bank of India guidelines
• Besides companies, Primary Dealers (PDs) and Satellite Dealers are also permitted to issue CP.

Who can invest in CP? 

Individuals, banks and other corporates, non-resident Indians (NRIs) and foreign institutional investors (FIIs) can invest in CPs. However, a single investor should invest at least Rs 5 lakh (face value). They can be paper-based or in the form of a promissory note, or in a dematerialised form through any of the depositories approved by and registered with Sebi. The proposed amount to be issued should be raised within a period of two weeks from the date on which the issuer opens the issue for subscription.

Do CPs issued need prior rating by any credit rating agency? 
Yes, issuers need to obtain a rating from agencies specified by RBI. The minimum ratings should be P-2 assigned by leading ratings firm Crisil or such equivalent rating by other agencies. Issuers on the other hand have to ensure that the rating is current.

What is the mode of redemption? 
Initially, the investor in the commercial paper (CP) is required to pay only the discounted value of the CP. On maturity of the CP, when the CP is held in a physical form, the CP holder presents it the issuing and paying agent (IPA). Those held in demat form, are redeemed through the depository and receive payment from IPA.